Key Differences Between Secured And Unsecured Loans

Getting a loan can be a long winded process, as there are many different loan products to choose from, with different loans available to suit different needs and circumstances. Before you apply for a loan you need to make decisions with regards to the type of loan you are looking for, and one decision that you need to make is whether you are looking to take out a secured or an unsecured loan.

Secured and unsecured are the two main loan types, and all loans come under one of these categories. There are key differences between these two loan types and the eligibility requirements for each of these loans types also varies, which means that some people may be eligible for both loan types, whereas others may only be eligible for one or the other. You need to carefully check the eligibility requirements in order to ensure that you do not waste your time applying for a loan that you do not even qualify for.

A secured loan is a loan that is secured against an asset, and usually this is the home, which means that you must be a homeowner to take out a secured loan. An unsecured loan, on the other hand, is not secured against any asset, and is based on contract and trust. Because of this the risk to the lender is greater, and therefore you will usually need to have a good credit history and rating to get an unsecured loan, although you do not have to be a homeowner.

There are some basic key differences between secured and unsecured loans, which could help you to make your decision when it comes to choosing the most suitable loan type. When it comes to borrowing power the secured loan offers far greater borrowing potential based on the equity level in your home and other factors, whereas the unsecured loan usually offers a maximum of 25,000 based on your financial and credit status amongst other things.

Another key difference between a secured loan and an unsecured loan is the repayment terms and periods available. Most unsecured loans offer repayment periods of up to five years, although some may offer as long as seven or even ten years. However, with unsecured loans you can enjoy far longer repayment periods, and this means that you can spread your borrowing over a far longer term, which can help to keep your monthly repayments down.

Another thing to bear in mind that is that if you have damaged credit you may find that you are unable to get an unsecured loan, because lenders will usually require you to have a good credit history. However, because secured loans are secured against the home the risk to the lender is lower, and therefore those with bad credit may find that they can still get a secured loan even if they are not able to get an unsecured loan.